Archive for November, 2011

So Tell Me, What Is Strategy?

Thursday, November 17th, 2011

Look anywhere and you’ll see tweets, posts and articles containing the word strategy. Marketing strategy, social media strategy, sales strategy, financial strategy, meeting strategy – in fact every kind of strategy you can think of.

Strategy – and strategic – are becoming greatly over used words. And in some cases they’re being imbued with mystique and complexity in order to create a need for “expertise”.

Why should we care? I can think of 2 reasons.

1. Strategy should be simple.

A strategy shouldn’t be an ethereal concept or a complex by design – in fact quite the opposite. Look at the Wikipedia definition – “a plan of action designed to achieve a particular goal.”

What could be more straightforward? A strategy has 2 parts. Part 1 – designing the plan and part 2 – translating it into action which achieves a specific goal.

It sounds simple – but the mystique and complexity can start with the words and phrases that are used to describe the design part of business strategy. I’m thinking of environmental scans, key competencies, scenario planning, strategic options etc.

To be fair there are some companies and clients with whom it is essential to use these buzz words in order to be considered credible.

But for everyone else – particularly for companies which haven’t worked with consultants before – the strategy design process should be kept clear and simple.

Another thing I’ve never been comfortable with is the point of view that a strategy must be perfect, a thing of great beauty. Making things of great beauty is the job of artists and plastic surgeons. Business people need to be pragmatic.

Anyway, many strategies which were judged imperfect or impossible – e.g. Steve Job’s strategy for Apple in 1987 and Herb Kelleher or Richard Branson’s entry to the airline industry – resulted in great successes.

And if a strategy isn’t made to work, to deliver results, what does it matter how nice it looks or sounds – which brings me to the second reason we should care.

2. The focus should be on the translating into action, achieving the goal part.

Research has shown, fairly consistently, that the majority (around 70% by some estimates) of strategies aren’t implemented or they fail.

Assuming that at least some of them were practical and simple, and yet still were never turned into action, what chance do complex strategies stand?

And here’s something that has always struck me as ironic.

Some of the reasons for designing a new strategy or changing/adapting an existing one are outside the control of the business owner and his/her team – e.g. competitive action, changes in the industry.

But all aspects of translating a strategy into action are totally under their control.

Makes you think, doesn’t it?

3. Final thoughts.

A business strategy is the means by which owners achieve their vision for their company. To do that it can’t be shrouded in mystique or only be a thing of ethereal beauty. And it can’t be complicated.

A good strategy informs all parts of the company about what they must do and how they must work together. It translates into the specific actions that must be completed to achieve clear goals which lead to the realization of the vision.

It turns the vision into results.

And don’t forget – a weak strategy implemented strongly will always beat a strong strategy implemented weakly.

 If you enjoyed this you’ll also enjoy 3 Things Which Shape A Good Strategy and 6 Tips For Getting Better Results in 2011 and Why You Want A Consultant With Hands-On Experience

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Being Profitable and Strong Increases Valuation

Wednesday, November 9th, 2011

In my last post I talked about 4 things every owner of a successful business must think about. They are the 6 reasons a company is sold, the 2 factors which apply to each of those situations and what being “profitable” and “strong” mean.

I promised then that I’d talk about how to make a company profitable and strong. So here we go.

1. How do you achieve consistent profitability? Here are 6 things every business owner can do to increase the odds that her/his company will produce consistent, industry beating profits:
a. Develop a strong product line – not only having width and depth in current products but also always having new products under development.
b. Build a great reputation – and recognizable identity or brand – in your target market(s) by delivering quality products and services, on time, that meet your customers’ needs.
c. Be in more than one market (which ideally do well in different phases of the economic cycle).
d. Have a broad customer base built on strong companies or affluent consumers.
e. Generate a stream of recurring revenue rather than working solely on projects which have to be replaced when complete.
f. Innovate – and create some intellectual property, products or processes, which can be protected, creating a sustainable advantage or a barrier to lock out competitors.

2. How do you make a company strong? Here are 6 things an owner can do to survive the loss of key people and keep his/her company’s balance sheet ratios looking good:
a. Document all processes. Especially the sales process which can be mapped, then managed, using a CRM system.
b. Involve all of the key people in a formal, annual business planning (and budgeting) process, which is completed 2 months before the start of a fiscal year and which includes formal, quarterly reviews.
c. Maintain strong internal financial controls, including cash flow forecasting, and insist on timely, monthly reporting.
d. If the management team doesn’t know and understand the drivers of the key balance sheet ratios have your accountant run a training program for them.
e. Always put leases and contracts – for everything and everyone – in writing.
f. Make Human Resources management a key part of your strategy and culture by e.g. driving accountability and responsibility through job descriptions; making decision making independent of the owner; identifying talent and training people for growth.

A company which is profitable and strong can survive the prolonged absence of the current owner as a result of injury or illness because it will continue to: 
• Execute its proven strategy.
• Be innovative, building barriers against competitors.
• Operate day-to-day without missing a beat.
• Produce revenues and profits at, or above, previous levels.
• Keep and attract good people.
• Attract financing should it be required.
• Survive any unexpected crises in the industry or economy.

The ability to do that also makes this type of company very attractive to a potential buyer – because the risk of the company failing in the short term is reduced significantly. And that means the valuation of the company – which determines the selling price – will be at the high end of the scale.

So by doing the 12 things I mentioned (and, in all fairness, some others like them) a business owner wins in 3 ways.

She or he makes great money while they run the company. They build security for themselves and their families in the event they are injured, fall ill or even die. And they maximize the return on the long hours, missed vacations and risks they’ve taken by getting a great price for the company if it’s sold.

How good is that?

If you enjoyed this you will also enjoy The 2 Truths Every Business Owner Has To Face and The Future Of Your Business: Succession or Exit

4 Things Every Business Owner Must Think About

Monday, November 7th, 2011

A few years ago one of our clients was unexpectedly made an offer for her company. It took her totally by surprise and so we had to react quickly to the situation.

She thought the offer was low and she tried to negotiate it up.

That’s when I realized that, until then, she’d given no thought to selling and even less to maximizing the valuation of the company.

That situation taught me there are 4 things every owner of a successful business must think about. Here they are.

1. The 6 Reasons A Company Is Sold. We now tell business owners that there are 6 things that will make them sell their company. They:

1. Accept an unsolicited offer.
2. Become so ill they are no longer fit to continue running the company.
3. Die young and unexpectedly.
4. Choose to retire.
5. Are no longer able to run the company – but this time because of old age.
6. Die of old age.

Some of the owners laugh saying that it will never happen to them. Some get annoyed that we even bring it up saying things like “I’m far too young to have to worry about that now” or “I’m not ready to retire/I will never retire.”

But the one thing they cannot do is argue that the 6 reasons are illogical or incorrect.

2. The 2 Common Factors. Then we tell them there are 2 factors common to all 6 situations:

a) They will only get an unsolicited offer, for top dollars, if the potential buyer believes that the business is profitable and strong.
b) They may not have to sell if they become ill – even so ill they can’t run the business – or if they retire. But if they retain ownership the company will have to run without them. And to do that it has to be profitable and strong.
c) If they do have to sell because of illness or when they retire, they will only maximize the return on their hard work – get top dollar – if the business is profitable and strong.
d) If they choose to retire; become too old to continue running the business; or die – young or old – they, their estate or their heirs have the same choice. They can either retain ownership or sell. And, once again, to get the most money out of the business it needs to be profitable and strong.

So what does it mean to be “profitable” and “strong”.

3. A “Profitable” Company is one that consistently produces industry beating profits.

Why consistently?  Because that’s the only test that making a profit was more than just luck. (As an old friend used to say – never confuse success with a growth market.)

Why industry beating?  Because what’s to say that even consistent profits couldn’t be improved. What better comparison than with other companies in the same industry? It removes one major variable – because every company in the industry goes through each phase of the economic cycle at the same time. And key indicators are available by either looking at the annual reports of public companies or by using the industry data published either by (some) associations or magazines like Inc.

4. A “Strong” Company can meet 2 criteria. One, it can maintain profitable operations despite the loss of 1 – or more – key personnel. Who are key personnel – the owner and anyone with specialist knowledge which would be hard to replace. Two, all key balance sheet ratios – liquidity, debt to equity etc. – are in great shape – in other words the company could borrow money from the most conservative of lenders.

What makes a company profitable and strong? I’ll tell you in another post.

By the way there are at least 2 other reasons a company could be sold – divorce and the break-up of a partnership. We’ll also deal with those in another post.

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